Sen. Dodd deflects administration criticism of financial overhaul

Sen. Chris Dodd (D-Conn.) on Friday defended his 1,136-page financial overhaul plan from criticism leveled by top Obama administration officials.

Dodd’s plan limits the role of the Federal Reserve to setting monetary policy. But the Obama administration and House Financial Services Committee Chairman Barney Frank (D-Mass.) favor having the central bank regulate the nation’s largest financial institutions.

On Friday, Austan Goolsbee, a member of President Barack Obama’s Council of Economic Advisers, said that by limiting the Fed’s responsibilities, there could be confusion in how the federal government regulates the financial system.

“You could get into a left hand doesn’t know what the right hand is doing kind of problem,” Goolsbee said at the Bloomberg Washington Summit, according to Bloomberg News.

“Systemically important institutions ought to be governed by the Fed,” Goolsbee said.

Kirstin Brost, a spokeswoman for Dodd, defended the plan on Friday.

“Leading up to the crisis, the Federal Reserve did not do a good job of protecting consumers or of regulating large bank holding companies,” Brost wrote in an e-mail. “Dodd wants to strengthen the Federal Reserve’s ability to perform core functions — monetary policy, lender of last resort and payment systems supervision.”

Brost underscored that Dodd wants to limit the Fed’s responsibilities.

“The financial crisis showed us that when an agency has too many responsibilities it won’t do any of them well. That includes the Federal Reserve,” Brost wrote.

Since the financial crisis erupted last year, Democrats and Republicans have heavily criticized the Federal Reserve, even if they praise Chairman Ben Bernanke.

Dodd’s plan would shift the Fed’s consumer protection responsibilities to a new Consumer Financial Protection Agency (CFPA) and shift the bulk of the bank supervision powers to a new consolidated bank regulator.

Dodd's committee will hold a meeting next week to start marking up the legislation, but senators will begin considering amendments during the first week in December.